Date: 08/23/2000 2:31 PM
Subject: Reference file: S7-13-00
I am a small practitioner in middle TN, and have become aware of the new
rules proposed by the SEC to prophibiting audits by firms that perform
non-audit services to the client. Although I do not perform SEC audits, I
have formerly worked for a firm that did, and I wish to register my comments
regarding this proposal. I am very much against this proposal without
further study.
I believe that even the SEC would agree that there is no evidence that
supports the premise that non-audit services have compromised audit quality
or auditor independence. In fact, I'm not aware of an audit failure that is
the result of performing these kinds of services. In the firm I worked for,
I did work on SEC audits and was independent, and in my case the non-audit
services were performed by other professionals of the firm. I would venture
to guess that this is true in most firms performing audits for SEC clients.
I understand that the SEC has ignored the conclusion of the current Panel on
Audit Effectiveness of the Public Oversight Board. According to the
literature I've read on this subject, the panel concluded: "both the
profession and the quality of audits are fundamentally sound." The panel
went on to conclude that in most cases, non-audit services actually
contributed to a better audit.
So, why is this proposal being made?
I believe this proposal would probably increase my ability to provide
contract services for SEC clients, but would unnecessarily take away public
companies' freedom of choice when seeking outside professional services. This
would force these firms to choose between hiring a firm as it's auditor, or
solely as a provider of other services. Even though enactment of this
proposal would increase my ability as a sole practitioner to provide these
types of services on a contract basis, I still disagree with the proposal on
the grounds that this is regulating an area that does not require additional
regulation.
Under the proposed rules, a public company might actually be compelled to
dismiss an audit firm that has done consistently good work in order to obtain
services from non-audit colleagues which might actually hurt the quality of
the work.
The proposed rule would impute to an accounting firm the activities of
virtually any entity with which the accounting firm has a commercially
valuable business relationship by viewing such an entity as an "affiliate of
the accounting firm." I believe this may raise some questions that no one is
prepared to answer this early in the process. This would preclude accounting
firms from entering into almost any partnership which could be construed as
impairing the accounting firm's independence. These partnership's may
actually be with other non-audit clients in which the firm has only an
immaterial ownership, but could preclude the firm from performing audits of
any related parties. This sounds too restrictive to an accountant who works
in a small community market.
I believe the SEC has rushed to regulate an area that doesn't need further
regulation without increased study of the subject matter.
If this rule is adopted, there will be a negative effect on recruiting and
retention of the best accounting talent. The best audit professionals will
not want to be at a firm where 25% - 40% of the market is "off-limits", and I
think the same is true for the best non-audit professionals. The best
students will not be drawn to firms with a limit on possibilities of moving
to good companies, or moving up within the firm. I believe this will hurt
"audit only" firms which is what the industry would end up with.
This scope of services rule must not be allowed to go forward without further
study of the ramifications.
Sincerely,
Jeanette Warren, CPA
1265 Windsor Dr, Gallatin, TN 37066